Country Report Ecuador February 2009

Outlook for 2009-10

• Mr Correa will continue to enact policies designed to bolster his popularity in the run-up to general elections in April 2009, which we expect him to win, but severe economic deterioration could threaten his hold on power.
• The opposition remains divided and unpopular and will not gain many seats outside its bastion of support in Guayaquil, but calls for regional autonomy may increase in the outlook period as support for Mr Correa declines.
• Ecuador's preferential trade access to the US under the ATPDEA faces another review in June 2009. The lack of a long-term trade agreement with the US, along with other policy uncertainties, will continue to hinder investment.
• State intervention in the economy is a key aspect of the new constitution and will increase during the outlook period, particularly in “strategic” areas, such as energy, banking and telecommunications.
• The debt default will make it difficult to attract the funds needed to finance government spending in the outlook period. This, combined with lower dollar inflows from oil, increases the risk of a collapse of dollarisation.
• The economy, which has become increasingly reliant on oil-backed government spending, will weaken sharply, contracting by 3.2% in 2009, before growing by 2.2% in 2010, driven by a partial recovery in oil exports.
• Inflation will ease in 2009-10 as base effects, a stabilisation of food prices and declining demand begin to lower the annual rate.
• A heavy decline in oil export revenue and workers' remittances means that the current account will fall into a deficit of 4% of GDP in 2009 before recovering only slightly to 1% (previously 2.6%) of GDP deficit in 2010.

Monthly review

• Despite warning of impending economic trouble, implementing limits on imports and alienating some of his nominal allies on the left, Mr Correa enjoys approval ratings near 70% and is poised to be re-elected in April.
• Brazil and Ecuador have resumed normal diplomatic relations following the return of the Brazilian ambassador to Quito.
• The government has opted to continue making payments on its 2015 global bonds (worth US$650m) despite choosing to default on its 2012 and 2030 global bonds (worth US$3.2bn) in December.
• Recent Central Bank figures show that average national oil production decreased by 1% year on year in November 2008 to 504,000 bpd, private production fell by 4.8%, but production from Petroecuador increased by 3.4%.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;60;53;59
NAICS Code: 22;52;44